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Hong Kong Air May Cancel A380s Over ETS

Hong Kong Airlines has threatened to cancel an aircraft order with Airbus due to growing tensions between China and the European Union over the bloc's emissions trading scheme, a local newspaper reported on Thursday.

The Hong Kong-based regional carrier, which is backed by China's fourth-largest carrier Hainan Airlines, said it was under pressure to cancel its order for 10 Airbus A380 aircraft with a list value of USD$3.8 billion, the South China Morning Post said.

"We cannot do something which is against our country's interests," the newspaper quoted airline President Yang Jianhong as saying.

China has previously threatened to hold back on purchasing Airbus aircraft in retaliation against the airline emissions fee scheme.

"I cannot confirm this and I have no comment on this," said Kenneth Thong, Hong Kong Airlines head of corporate governance and international affairs.

This will be the second time that Hong Kong Airlines’ A380 deal was at risk of being derailed by the dispute between the European Union and China.

"Hong Kong Airlines had indicated to delay or withdraw the acquisition of A380s before but it signed an order eventually," said Kelvin Lau, an aviation analyst at Daiwa Securities.

"The facts show that Europe's actions are unpopular, and will have no effect," he said. "We hope that Europe can face squarely the international community's concerns and devote themselves to solving the issue not further complicating it."

Plans to announce the high-profile A380 deal between Airbus and Hong Kong Airlines were called off at the Paris Airshow last June because of China's anger over the emissions trading scheme, industry sources said.

Hong Kong Airlines only confirmed its order for the double-decker A380 months afterwards.

DELIVERY ON SCHEDULE

China Southern Airlines is the only mainland Chinese airline that has ordered the A380 so far. Two of the five planes it ordered are already in service on the Beijing-Guangzhou route.

"The third A380 is arriving today and will start serving the Beijing-Hong Kong route tomorrow. There is no plan to cancel the other two," a spokesman at the airlines said.

Analysts said the Airbus-Boeing duopoly in the supply of larger commercial aircraft left China with little choice but to rely on the European and US firms to feed its fast-growing demand for civil aviation.

In February, China banned its airlines from participating in the European Commission's airline emissions trading scheme without approval, saying it violated international law.

China's four biggest airlines, Air China, China Eastern, China Southern and Hainan Airlines would also consider taking legal action against the EU over the move to charge for carbon emissions on flights to and from Europe, according to the China Air Transport Association.

The holding company that controls Hong Kong Airlines counts Hainan Airlines and Hainan Airlines' parent HNA Group among its biggest shareholders.

The carrier, which had a fleet of 14 aircraft including six A330-200s and eight Boeing 737-800s, was taking delivery of eight to 10 aircraft this year, its spokeswoman told reporters in January.

It operates scheduled flights to 10 cities in China and other parts of Asia and Europe, including Indonesia, Japan, Singapore, Thailand, Vietnam and Russia.

The carrier has said it would start daily flights between Hong Kong and London in March, but the ETS scheme would not have a big impact on its customers and the airline as the flights would be all-business class.

The scheme, which levies charges for carbon emissions on flights in and out of Europe, has also drawn the ire of other countries, including the United States and India.

Foreign governments argue that the EU is exceeding its legal jurisdiction by calculating the carbon cost over the whole flight, not just Europe.